What are mortgage rates doing in the wake of the Federal Reserve’s September interest rate reduction? The average rate on the 30-year-fixed mortgage is 6.53%, according to Mortgage News Daily. Counterintuitive as it might seem, that’s 42 basis points (0.42%) higher than September 17, the day before the Fed cut its benchmark rate by half a percentage point. How so?
Unlike short-term bonds and money markets, mortgage rates aren’t closely tied to the Fed. Since mortgages are typically long-duration loans, their rates are more closely correlated to the 10-year U.S. Treasury. Those yields are established by the bond market at large. 10-year Treasury yields and mortgage rates jumped after a strong employment report this past Friday, October 4. The employment data suggested the economy is ticking along nicely, and future rate cuts by the Fed are unlikely to be rapid.
What’s the takeaway for folks considering buying a home or refinancing? “Mortgage Bankers Association’s forecast is for longer-term rates, including mortgage rates, to remain within a relatively narrow range over the next year,” the Mortgage Bankers Association’s chief economist, Michael Fratantoni, wrote on Friday. “This news will push mortgage rates to the top of that range, but we do expect that mortgage rates will stay close to 6% over the next 12 months.”